China Developers Look Abroad—for Chinese Buyers

SHANGHAI—When Zhang Yuliang's property company struck a deal to buy and develop a residential and hotel building in downtown Sydney, he had Chinese customers in mind.

"The number of rich Chinese who invest abroad, who are employed abroad, is huge. And the number is becoming bigger," he said.

Chinese property deals abroad rose sharply last year to $1.86 billion from $547 million in 2011. The WSJ's Esther Fung explains where large Chinese property developers are going to cater to Chinese buyers.

Mr. Zhang's Shanghai-based Greenland Group earlier this month said it bought the project from Canadian firm Brookfield Asset Management Inc. for 107.5 million Australian dollars (US$111.4 million). That adds to an international portfolio that includes a project on Jeju Island in South Korea and partnerships with hotels in Spain and Germany. Last week, it said it plans to list some of its overseas assets in Hong Kong this year, which would pave the way for offshore capital-raising.

Mr. Zhang, chairman of Greenland, said the company also is considering investing in the U.S. West Coast. "We are interested in places where there are many Chinese people," he said.

State-controlled Greenland has become the latest Chinese property developer to look abroad, as many seek to diversify as well as cater to rising demand from Chinese migrants and investors. Many of them have been shut out of the property market on the mainland because of government steps to cool the domestic property market for fear that surging housing prices could hurt social stability.

Chinese property deals abroad rose sharply last year to $1.86 billion from $547 million in 2011 and $90 million in 2010, according to data from Dealogic. Excluding Hong Kong, deals last year totaled $450 million, a 46% jump from 2011. Dealogic didn't factor in deals smaller than $100 million unless they made up the acquisition of at least a 5% stake.

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China Vanke,0000020.71% the world's largest home builder by revenue, in February said it was investing in a joint-venture luxury condo project with a total of 655 units in San Francisco with Tishman Speyer.

"Outstanding companies need to have a global perspective," said Vanke Chairman Wang Shi when the Tishman Speyer deal was announced.

Xinyuan Real Estate Co.XIN0.73%, a Chinese property developer listed on the New York Stock Exchange, bought a site in Williamsburg, in the New York City borough of Brooklyn, for its first development in the U.S., a 216-unit condominium building. Xinyuan plans to sell about 40% of the units to Chinese investors.

Developers are hoping to follow Chinese buyers abroad. "Big developers like Greenland and China Vanke have wider brand recognition compared to the smaller firms and foreign firms," said Mr. Zhang.

Industry analysts and participants say Chinese developers could struggle at first because Chinese buyers often prefer to purchase from a foreign developers. Home buyers often would rather buy from a developer with a history in the local market, said Bunny Wang, director of International Properties at Colliers International, who has been advising Chinese customers about overseas home purchases since 2010.

"Customers will also look into a developer's track record; if it had constructed a landmark building before, if it is trustworthy," said Ms Wang. "They generally have the impression that foreign developers deliver better quality homes compared to their Chinese counterparts."

ENLARGE

The site that China's state-owned firm Greenland Group recently purchased in downtown Sydney. Greenland Group plans to redevelop the project, which would include residential units and a hotel.
Calvin Lee for The Wall Street Journal

"If I want to purchase property in the U.S., I'd pick a local developer over a Chinese developer. The quality of homes would likely be better," said Chen Yining, a Shanghai native who is looking to invest in a home in the U.S. "Unless, of course, I get favorable mortgage conditions, or if I can pay in yuan."

Greenland Group, which recorded domestic property sales totaling 105.1 billion yuan in 2012, said it expects to make more than 2 billion yuan in revenue this year from its overseas projects. Mr. Zhang said he expects the number to grow but declined to give targets.

The Shanghai native, one of the founders of Greenland Group in 1992, had studied economics and management at Shanghai Agricultural Institute. He oversees Greenland Group's energy and financial services unit and is part of an advisory group in China's housing ministry.

Big developers say they have the financial strength to invest abroad. Greenland Group's Sydney acquisition was funded by the company's own money and loans from Chinese and Australian banks, said Mr Zhang.

"When we went to Australia and South Korea, both domestic and international banks were edging for a chance to loan us money. Big companies have a clear advantage when it comes to cash flow," said Mr Zhang, adding that China Development Bank is one of its financiers.

Mr. Zhang said he is aware of how Japanese firms lost large sums on high-profile foreign investments such as Rockefeller Center and Pebble Beach Golf Course in the late 1980s and notes that the failures had to do the volatility of the yen and Japan's monetary policy. "It was a massive overseas push at that time with so many big companies going all out at once, as though they were going to a battle."

"But we have a proactive and steady outlook for our overseas expansion. We do analysis, and won't expand blindly," said Mr. Zhang.

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